KUALA LUMPUR: Malaysian technology companies with exposure to the optical transceiver supply chain could emerge as beneficiaries as geopolitical tensions accelerate the shift of manufacturing away from China, Hong Leong Investment Bank Bhd (HLIB) said.
The research house said the United States' proposed restrictions on new Chinese-made optical transceiver models could reinforce the "China+1" strategy, prompting more production to move to Southeast Asia, Taiwan and the US.
Chinese manufacturers currently account for more than half of global optical transceiver supply. However, global players such as Coherent and Lumentum have already established manufacturing operations and are expanding capacity in Southeast Asia, HLIB said.
It said the proposal targets only new models, meaning next-generation 1.6-terabit optical transceivers for the US market could be manufactured outside China from the outset.
"This increases the strategic importance of trusted-origin manufacturing capacity and could strengthen pricing across the non-China supply chain," HLIB said.
Among Malaysian companies, HLIB said Inari Amertron Bhd stands to benefit as its datacom photonics business is supported by Broadcom's indium phosphide laser production ramp-up, which it expects to expand four- to six-fold over the coming years.
The research house said another upside catalyst could come from "Customer L", with the proposed US restrictions potentially accelerating the customer's capacity expansion through outsourced manufacturing.
"This increases both the probability and potential value of outsourcing for Inari," it said, while maintaining a "Buy" call and RM2.60 target price on the stock.
For NationGate Holdings Bhd, HLIB said existing customer Coherent and prospective customer "Customer L" could both expand production, supporting the company's earnings recovery.
It added that EG Industries Bhd could also benefit through its partnership with China-owned Cambridge Industries Group (CIG), which supplies optical transceivers to several US hyperscale data centre operators.
HLIB said CIG's decision to establish manufacturing in Malaysia through EG Industries was aimed at building a non-China production base. The transfer of certain intellectual property and patents to EG Industries has further strengthened that position.
However, the research house said the impact on EG Industries would ultimately depend on how the US Federal Communications Commission defines a "Chinese supplier" under the proposed rule, including whether the assessment is based on ownership, intellectual property or manufacturing location.
HLIB cautioned that the proposal could still be revised or withdrawn. Even so, it believes the continued risk of US restrictions will encourage hyperscale customers to diversify sourcing away from China over the medium to long term.
The research house maintained its "Overweight" call on Malaysia's technology sector, citing a broadening semiconductor upcycle and sustained earnings momentum.
Its top hardware picks are UWC Bhd, Inari Amertron and Unisem (M) Bhd, while ITMAX System Bhd remains its preferred application-layer artificial intelligence play.